The US$ is trading with a mixed tone today as traders remain cautious ahead of the US job report, see below. The main focus on Thursday has been on the Yen and the Kiwi, both of which have rallied on the day as profit taking set in. Otherwise both the Euro and Cable have been under some pressure due to more soft data. In the EU, the flash CPI slowed to 1.2% yy in April, down from 1.3% yy and missed expectation of 1.3% yy, while the Core CPI performed even worse, dropping to 0.7% yy, down from 1.0% yy and missed expectation of 0.9% yy. In the UK, the Services PMI rose to 52.8 in April, up from 51.7 but missed consensus of 53.5. In the US, the trade deficit narrowed sharply in March as exports increased to a record high amid a surge in deliveries of commercial aircraft and soybeans, underpinning the economy’s outlook heading into the second quarter. The trade deficit tumbled by 15.2% to a 6-month low of $49.0 billion in March, after widening $57.7 billion in February, which was the highest level since October 2008.
In other markets, stocks had a volatile day in falling heavily ahead of a strong bounce to finish more or less unchanged, while the metals also had a bit of a rally that saw Gold up by $6oz, while WTI also rallied after Iran said it would not renegotiate the nuclear deal, accusing the U.S. of “bullying,” and stoking expectations for new sanctions on Tehran.
Friday will largely be spent in waiting for the US Jobs/NFP/Average Hourly Earnings data. Before then though, during the Asian session we get the RBA’s quarterly Statement on Monetary Policy, with the RBA expected to lower its growth forecast from 3.25% to 3.0%, the RBNZ Inflation Expectations and the Caixin China Services PMI. Europe will look to the Composite and Services PMIs, ahead of the US employment numbers.
The NFP figure will be looking for an improvement on last month’s reading of just 103K, although this followed on from the exceptionally strong February reading of 326K. The April expectation is for a rise of 190, with a band of something like 170k/220k being a fairly neutral reading. In recent months though, the real focus has been on the persistence of the low rate of wage growth in the US, where the average hourly earnings (AHE) grew 0.3%mm/2.7%yy in April, slightly above the 2.6% average for the whole of last year. Although this all seems rather benign, it should be noted that the Beige Book of Fed Business increasingly highlights the rise in inflationary pressure and lack of manpower. This was reiterated in Tuesday’s ISM release which indicated a shortage of skilled workers. If Friday’s AHE figure indicates a noticeable acceleration (i.e. 0.3%mm or higher), the dollar should head higher although, on the other side of the coin if the current, subdued rate of growth is maintained, it will most likely cause a sell-off in the dollar and a move higher in stocks, which would like the fact that the Fed will remain on hold for a while longer.
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